creating value using risk management€¦ · • bavaria (han) : combine gut feeling with analysis...

Creating value using “Risk Management”

Richard Cornielje - KYOScornielje@kyos.com

• Clingendael (Marcel) : Geopolitics & markets

• BAVARIA (Han) : Combine gut feeling with analysis & experience

• TATA (Jaap) : Procurement + Sales … Underlying Exposure

• KPMG (Frans) : Hedging….Y/N

• RABO (Arjan) : How to hedge

What have we seen thusfar….

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Where does KYOS adds value to the chain?

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Physical flows, contracts & market prices

Consistent approach on multiple raw materials & products sold

Financial impact of changed conditions

Assist you to look forward as …….. hindsight is a wonderfull thing

Portfolio & Risk Management in practice

- stay in “full” control

Manage budgets - consumption/production

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• Forecasted consumption per Plant • Hedging strategy per Commodity

Store contracts - buy & sell - physical/financial

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• Partially priced – fully priced• Multiple indexes

Can contract 33 cl

Dredging contract

Store all market price components

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“Weight” of “Underlying”

Automated analytics on all raw materials

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KYOS analytics…..Your advantage

Automated analytics on all raw materials

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KYOS analytics…..Your advantage

• Daily – Monthly

• Positions, underlying & cashflows

• Mark-to-market (MtM = contracted prices vs “market”)

• Value-at-Risk (VaR)

• Monthly

• What-If “stress testing” (also ad hoc)

• Budget versus actual / forecasts

• Quarterly

• Cashflow-at-Risk

Report : plan – act – SHARE – check

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Insight in contracted volumes (Glass producer)

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Sold to

Bought from….

Leading to insight in contracted cash flows

12 Tender Finance Transparency

Can contract 33 cl

Store all market price components

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Multiple cans (15cl, 22cl…..)StoppersProduction choice: Steel or Aluminium

Exposure in 2018: 500 million 33cl cans

Visualize “underlying” of Aluminium cans

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Commodity hedging

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Remember what Jaap & Han stated…….

Connect hedges to physical contracts

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Underlying exposure is now

covered by financial hedge

Reporting : Mark-to-market (MtM)

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MtM = contracted fixed price vs “current market price”

Reporting a short risk …. using statistics

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VaR : 5,000 MT Aluminium

Annualized Volatility 13%

* Underlying Price * 1,875 USD/MT

* Confidence-Level * 1.645

* Holding Period * days/220

10 day VaR USD 425.000

95%

certainty

From aluminium to natural gas

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VaR : 500,000 MWh Natural Gas

Annualized Volatility 20%

* Underlying Price * 15 EUR/MWh

* Confidence-Level * 1.645

* Holding Period * days/220

10 day VaR EUR 525.000

95%

certainty

• Daily - Monthly

• Positions and cashflows

• Mark-to-market (MtM = contracted prices vs “market”)

• Value-at-Risk (VaR)

• Monthly

• What-If “stress testing” (also ad hoc)

• Budget versus actual / forecasts

• Quarterly

• Cashflow-at-Risk

Follow up ………plan – act – share – CHECK

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Regular “stress tests” will help you to….

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• sales will change …

• supplier cannot deliver …

• market prices move a “wrong” direction …

• you made a mistake (oops) …..

React adequately and well prepared if …

Commonly used = stress testing

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What happens if prices fall or rise

Test your strategy

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Open position:

To be hedgedTo be sourced

Hedge strategy

Physical hedges Financial hedges

• Daily - Monthly

• Positions, underlying & cashflows

• Mark-to-market (MtM = contracted prices vs “market”)

• Value-at-Risk (VaR)

• Monthly

• What-If “stress testing” (also ad hoc)

• Budget versus actual / forecasts

• Quarterly

• Cashflow-at-Risk

Horizon & tools for risk management

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KPMG: Risks before & after hedging

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Case: 5,000 MT Aluminium – Delivery during 2018

KPMG: Risks before & after hedging

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Case: 5,000 MT Aluminium – Delivery during 2018

Translate experience into trusted execution

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Brains Experience

Ideas Knowledge

Engagement Execution

Translate risks in EUR

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We calculated that a 10 day VaR is approximately USD 425,000

What range can be expected for a longer period such as 2018 ?

KYOS analytics…..Your advantage

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Result: Uncertainty is translated into a bandwith in EURImproved cash flow forecast

• Up-to-date insight in positions, cashflows and risks

• Improved reliability, consistency & transparancy

• Procurement - Sales - Finance & Treasury

• Uncertainty translated into EUR

• Prepared for the future

Realized business values

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Example Companies with KYOS software

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Cyriel de Jong - Hans van Dijken - Richard Cornielje

KYOS Nieuwe gracht 492011 ND Haarlem +31 (0)23 5510221 www.kyos.com cornielje@kyos.com